Part of the issue here is that the game only deals with a small span of time. It's one thing to conquer a swath of land that's physically larger, and contains more people, than any other empire to date. It's quite another to keep it together for more than a decade. And it is still another to build a viable economy and culture for multiple decades after the conquest.
In another thread, we spent considerable time debating the realistic possibility of an Axis victory over the Soviets. One point that came up was that even if the Germans achieved their territorial ambitions against the Soviets, a refusal of the Soviets to surrender might not ever force the Germans out of the occupied territory (as in, the Soviets are forced to accept the territorial concessions of the Bitter Peace per HOI3, but Stalin never actually surrenders and sporadic fighting continues). But would it really be victory if Germany continued to keep a large army mobilized and continued to sustain significant casualties on the Eastern Front? The Soviets don't ever "win" by liberating their territory, but it's hard to call it a win for the Germans if the annexed territory is mostly useless between famines, insurgencies, partisans, and no real peace.
It's the same issue facing the Japanese victory in China. While it's very hard to imagine a complete annexation of China by Japan historically, even if it was somehow miraculously accomplished, would it still really be victory if the IJA must keep 3 million troops mobilized and stationed in China desperately trying to suppress insurgencies, warlords, workers going on strike, famines from failed agriculture, partisans, and all the other problems associated with conquest? It's hard to see it as really "winning" in the long run.
The time frame of any HOI3 game means that you don't have to live with the consequences of your empire building. So, the associated problems of world conquest aren't really there to model. And I think this is something the game can't really model. Do you honestly think the German people would have continued to support the regime for forty years if they had to stay mobilized in a war-time economy (rationing, lack of consumer goods) the whole time and cope with the widows and orphans effect, just to hold on to an empire? I don't think so; but HOI3 doesn't have any kind of economic or war exhaustion, and it shouldn't, either.
The irony is that the biggest deterrent to world conquest is something the Axis powers could not have foreseen with their outlook: world spanning empires were already on the way out. Just ask the British and the French a decade after V-J Day.
Although, I just thought of a brilliant idea for a cyberpunk themed novel. A novel set in a future where the Axis powers won WWII, but globalization of the world economy and the Information Age still happen at roughly the same historical points. You'd have Krupp industries acting as a multinational corporation making billions of dollars a year while the Nazis are in decline, losing control of their empire. Jewish hackers change their ethnic certifications in Gestapo databases to avoid imprisonment while Yakuza crime lords blackmail prominent members of the Yamato family into giving them special business concessions in Indochina.
